Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Retail Opportunity Investments Corp (NASDAQ:ROIC)
Q3 2020 Earnings Call
Oct 27, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Retail Opportunity Investments' 2020 Third Quarter Conference Call. [Operator Instructions]

Please note that certain matters discussed in this call today constitute forward-looking statements within the meaning of Federal Securities Laws. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company can give no assurance that these expectations will be achieved. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements and expectations. Information regarding such risks and factors as described in the Company's filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K, participants are encouraged to refer to the Company's filings with the SEC regarding such risks and factors, as well as for more information regarding the Company's financial and operational results. The Company's filings can be found on its website.

Now, I would like to introduce, Stuart Tanz, the Company's Chief Executive Officer.

Stuart A. Tanz -- President and Chief Executive Officer

Thank you. Good day, everyone. We appreciate everyone joining us today and hope that you and your families are doing well and continue to be safe. Here with me today is Michael Haines, our Chief Financial Officer; and Rich Schoebel, our Chief Operating Officer.

We are pleased to report that our portfolio of grocery-anchored shopping centers continues to perform impressively strong during this unprecedented time. The important strategic initiatives that we implemented during the second quarter at the beginning of the pandemic to adapt and best position our centers with the appropriate safeguards, protecting tenants and customers alike, serve to facilitate the reopening of tenants and to promote shopping activity at our properties, as we progressed through the third quarter. Additionally, our initiatives to create new outdoor spaces to enable certain businesses to reopen has also been embraced by the communities they serve. In short, customers in shopping activity at our shopping centers have returned in force.

In step with customers returning and tenants business is steadily increasing, our base rent collection rate has steadily increased as well. The beginning of the pandemic back in April when strict business shutdown orders were first put in place, our base rent collection rate was about 68% at that time, which was the highest in our sector. Thanks in large part to our long-standing daily necessity grocery-anchored focus. Working collaboratively with our tenants, we are successful with increasing our base rent collection rate to 82% when we reported second quarter results. During the third quarter, we continue working with tenants to reestablish their businesses. As a result of our efforts today, our base rent collection rate for the third quarter is approaching 90%.

Along with customer activity and rent collection steadily increasing, leasing activity has also returned in force. While demand for space across our portfolio has held firm throughout the pandemic, actual leases being signed did slow considerably during most of second quarter, given all of the uncertainty at that time. However, as our tenants reopened their businesses and shopping activity returned, during the third quarter, retailers went from just inquiring about space to again wanting to sign leases and move forward expeditiously. As a result, during the third quarter, we executed over 441,000 square feet of leases, which was close to setting a new record in terms of our historical third quarter leasing activity.

Additionally, not only did we achieved strong leasing volume in the third quarter, we also achieved solid rent growth as well, posting a blended cash increase of 12% on new and renewed leases. Overall, we are encouraged as to the progress that we've made thus far toward returning to full normal operations. That said, no doubt there will continue to be extraordinary challenges and we intend to remain proactive in adapting our business and working closely with our tenants as the pandemic continues to evolve.

Lastly, notwithstanding facing extraordinary challenges during the past eight months, ROIC was just awarded an investment-grade rating and stable outlook from Fitch Ratings. To achieve this during such an unprecedented and uncertain time, we think speaks volumes as to the long-term strength, stability and resiliency of our portfolio and business.

Now, I'll turn the call over to Michael Haines, our CFO. Mike?

Michael B. Haines -- Chief Financial Officer

Thanks, Stuart. With our portfolio and tenants making solid progress during the third quarter, from a financial perspective, our business strengthened as well. GAAP net income attributable to common shareholders for the third quarter of 2020 was $6.5 million, equating to $0.06 per diluted share. And funds from operations for the third quarter totaled $31.6 million, equating to $0.25 per diluted share. As compared to our results for the second quarter, both net income and FFO increased notably in the third quarter.

To date, we have received 88.7% of our total base rent for the third quarter, with respect to the remaining 11.3%, which totaled approximately $5.8 million, of that approximately $1.4 million has been deferred to date, roughly $2.7 million is currently in negotiation and approximately $1.7 million was a bad debt reserve for current tenants. We also reserved approximately $500,000 of bad debt relating to past tenants. So, our total bad debt for the third quarter was approximately $2.2 million.

Turning to our balance sheet, given how our portfolio and business progressed during the third quarter, we repaid the $130 million on our credit line that we had drawn as a liquidity safeguard back at the beginning of the pandemic. As a result, at September 30, there was only $103.5 million outstanding on our $600 million unsecured credit facility, meaning we currently have just shy of $500 million available on our line. Additionally, we currently have $62 million in cash in our balance sheet today, of which approximately $49 million represents the net cash flow from operations that we have carefully conserved since the beginning of April. Assuming our business continues to progress as we move through the fourth quarter, our objective will be to utilize the majority of the cash in our balance sheet to further reduce outstanding debt.

Now, I'll turn the call over to Rich Schoebel, our COO. Rich?

Richard K. Schoebel -- Chief Operating Officer

Thanks, Mike. Echoing Stuart and Mike's comments, our portfolio and tenant base continued to perform well and made solid strides toward returning to full normal operations. Starting with our lease rate, our anchor space continues to be 100% leased and our shop space remains at a strong 93% leased. In terms of our overall lease rate, at September 30, our portfolio stood at 96.8% leased, which represents only a 90 basis point differential from where our portfolio lease rate stood prior to the pandemic. The fact that our lease rate continues to hold up remarkably firm is indicative of our long-standing strategy of focusing on tenants that provide daily necessities and essential services which have remained in demand throughout the pandemic.

And speaking of demand, as Stuart indicated, during the third quarter, leasing activity returned in force. Specifically, we leased over 441,000 square feet of space in total, including 134,000 of new leases where we achieved a 12.2% increase in same space comparative cash rents. Bulk of the new leases were shop tenants, where we leased 104,000 square feet of space, achieving a 14.9% cash increase in base rent.

In terms of renewal activity, we renewed 307,000 square feet of space during the third quarter, increasing cash base rents by 11.6% on average, including an 11.9% increase on anchor renewals, and 11.3% increase on shop space renewals. The bulk of these renewals simply involve tenants exercising existing renewal options in many cases ahead of scheduled expirations and with contractual rent increases. We think our tenants' interest in readily renewing the leases during this uncertain time with double-digit rent increases reflects the strength and desirability of our shopping centers. Additionally, the demand for space is coming from a strong mix of existing tenants whose businesses have performed very well during the pandemic, such that they are opportunistically seeking to expand into neighboring spaces, as well as from new retailers, again who have performed very well and are now seeking new opportunities to grow their businesses.

From our perspective, the pandemic is accelerating the natural transition of underperforming space being taken over by stronger retail concepts and service providers. Importantly, we are capitalizing on this trend to create greater synergies and complementary uses among our tenants, which in turn will enhance the overall strength of our tenant base, as well as enhance the consumer draw and appeal of our centers.

Given the significant increase in leasing activity during the third quarter as compared to the second quarter, the economic spread between leased and billed space increased during the third quarter. At the beginning of the third quarter, the spread stood at 2.9%, representing approximately $5.9 million in additional incremental annual rent on a cash basis. Taking into account leasing activity during the third quarter, the spread increased to 3.4% as of September 30, representing approximately $6.9 million of incremental cash rent to come online as new tenants take occupants and commence paying rent.

In terms of anchor lease expirations for the remainder of 2020, we have just one anchor lease expiring in the fourth quarter, the leases with one of our strongest national grocers. They have a five-year renewal option remaining on their current lease. However, rather than simply exercising the renewal option, they would like to establish a new long-term lease, which we are in the process of negotiating with them. Looking ahead to 2021, we only have six anchor leases scheduled to expire, four of which are with grocery and drug stores, which we expect to renew. With respect to the other two anchor tenants, we currently expect they will renew as well, as their businesses have remained open during the pandemic and their stores have been performing exceptionally well.

Lastly, in terms of pad development activity, during the third quarter, we broke ground on a new pad building at one of our shopping centers in the Seattle market, which is fully committed. Additionally, we have two other pads that we expect to break ground on the coming months, that are also pre-leased, one at the center in the San Francisco market and one at a center here in San Diego. Importantly, the pads are pre-leased to a strong mix of essential national retailers whose businesses have all fared well during the pandemic. Furthermore, the fact that these retailers are eager to move forward during the pandemic speaks to their confidence in the underlying long-term fundamentals of our core West Coast markets and to the strengths of our shopping centers.

Now, I'll turn the call back over to Stuart.

Stuart A. Tanz -- President and Chief Executive Officer

Thanks, Rich. Here in the fourth quarter as we head toward the holiday season, demand for space and leasing activity continues to ramp up. We are working hard to make the most of the opportunities with the overriding objective being to enhance the strength and diversity of our tenant base as Rich discussed. We are also continuing to work extremely hard continuing to be highly engaged and proactive at enhancing and best positioning our centers as the pandemic evolves. For example, with the cooler season approaching, we've already secured many key items, such as space heaters and wind barriers and/or that our tenants can continue to utilize outdoor spaces in the coming months.

Additionally, we continue to be very proactive in working with local municipalities in steering small businesses grants and assistance toward our tenant base and helping our tenants take advantage of the assistance. As an example, just recently, a municipality up in our Seattle market started a promotional program aimed at helping local full service restaurants get back up and running by the municipality funding a 30% discount to dine-in customers. When they announced the program, we immediately contacted all of our dine-in restaurant tenants, almost all of which were unaware of the opportunity. In light of our business and portfolio continuing to progress, we expect to reinstate our dividend starting in the first quarter. Given that there is still considerable uncertainty regarding the pandemic, when we do reinstate the dividend, it will be at a conservative payout ratio in order that we can continue to conserve ample cash flow.

While we have largely been in a defensive mode for the past eight months, focusing on protecting value through adapting our centers and working collaboratively with our tenants, now that our business and portfolio are steadily progressing toward returning to normal operations, we are working to shift back to offense. As Rich highlighted, we have three pads getting under way. We also have a number of additional pads throughout our portfolio in the planning stages as well. Additionally, we continued to make excellent progress on the densification front. With respect to the three projects currently going through the entitlement process, all three are steadily progressing such that we could be in a position to break ground on possibly two of the projects during 2021, with a third starting in 2022.

As it relates to the acquisition market, after eight months of essentially no activity on the West Coast, we are starting to see some property owners touched in the marketplace. Thus far, pricing parameters and expectations are largely the same as before the pandemic, especially for prime grocery-anchored shopping centers. Needless to say, we are keeping a close watch on the market with an eye toward being in a position to start our recycling program again in 2021 depending on how things unfold.

In terms of potential off-market, privately held acquisition opportunities, while it's still early. Our sense is that, these properties that are well located solid shopping centers yet undercapitalized and therefore, less equipped to handle tenant turnover during the pandemic could prove to be excellent buy-in opportunities for us in 2021. We are carefully watching to see how those opportunities develop as well.

Finally, as the pandemic has evolved, presenting new challenges at every turn, it has been an enlightening experience for all of us at ROIC in terms of how we run our business and how we are having to quickly adapt and keep adapting, while also staying safe, as well as keeping our loved ones safe too. I'm proud to say that our team has stepped up incredibly and continues to do so every day. Along the way, we've become more nimble and efficient as an organization. And while no one knows when the pandemic will fully subside, I can assure you that our team is as committed and determined as ever to our mission of working tirelessly at building long-term value.

Now, we will open up the call for your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Katy McConnell with Citi. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Katy.

Michael B. Haines -- Chief Financial Officer

Hi, Katy.

Katy McConnell -- Citigroup -- Analyst

Thanks and good morning, everyone. So, could you walk us through the portion of your uncollected rents that's under deferral versus unresolved at this point? And for that unresolved part, can you discuss your plan and outlook for ultimately collecting based on the health of these tenants?

Stuart A. Tanz -- President and Chief Executive Officer

Sure. So your question came in a bit blurry, but -- so in terms of resolving what is unresolved, we continue to work through that part of our tenant base every day. And we are getting close in getting most of that unresolved over the next month -- two months. I think by the end of the fourth quarter we should be in great shape just in terms of having almost all of our tenants resolved. But again, these are ongoing discussions that are complicated in nature. And we are making very good progress on that front.

I think the first part of your question was related to -- can you just repeat that because it came through a bit fuzzy here?

Katy McConnell -- Citigroup -- Analyst

Yeah. Sure. I was just trying to get a sense for the portion that's under deferral agreements that you're working on versus the portion that's completely unresolved at this time.

Stuart A. Tanz -- President and Chief Executive Officer

So what we've got, Mike?

Michael B. Haines -- Chief Financial Officer

I'm not sure how much is totally we have in deferral, I think about $5 million or so that's been totally deferred. And just as a data point, the amount that was deferred from the second quarter that started to be rebilled in the third quarter. We rebilled about $411,000 or something like that and we've collected about 87% of that. So the collection rate on the deferred amount that's been rebilled is pretty high. We're very pleased with that and hopefully that stays -- that continues going forward.

Katy McConnell -- Citigroup -- Analyst

Okay, great. Thanks.

Operator

Thank you. And our next question comes from the line of Mike Mueller with J.P. Morgan. Your line is open.

Michael Mueller -- J.P. Morgan -- Analyst

Yeah, hi.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Mike.

Michael B. Haines -- Chief Financial Officer

Hi, Mike.

Michael Mueller -- J.P. Morgan -- Analyst

Hey. Good morning. Just wondering, can you walk through, take the reserve level from 2Q and then where you ended up in Q3 and what changed and kind of what came out of it, what categories of tenants, what -- just any color you give us on that progression from Q2 to Q3.

Stuart A. Tanz -- President and Chief Executive Officer

Well, I mean, in terms of -- I mean, really it was all part of the negotiations that started all the way back in April and May, those accelerated during the third quarter and a number of those did get resolved. And in getting those resolved, obviously, we got payment for what resolved in Q2 and Q3 as well. And in getting paid in Q3 for Q2, that increased the overall collection. And in some cases, we had to take what we reserved and that setup the -- and reverse that. So, I think that had a bit of an impact in terms of lowering the reserve for Q3.

Anything else, Mike, that you want to add?

Michael B. Haines -- Chief Financial Officer

I will just -- you and Rich are better, actually talking to the tenants on a daily basis, but I think there is a higher confidence level in the collection rate. I know in Q2 we were pretty aggressive and took about $4.9 million or so on the current tenants and this quarter is like $1.7 million. So there is a big drop, yeah, but I think it's because we're more comfortable with the tenant base and their ability to pay over the long-term.

Stuart A. Tanz -- President and Chief Executive Officer

Yeah. Of course, during the third quarter, Mike, lot of our tenants began either got opened and with the -- I think as we've articulated with the huge increase in traffic that gave them the confidence to also go back and pay us what they owed us for that month and previous to that as well. They had the confidence in their business is not only surviving, but also their business is picking up and sales in a lot of cases for the tenants that reopened have actually gotten pretty close to what they were before the pre -- before the pandemic.

Michael Mueller -- J.P. Morgan -- Analyst

Got it. Okay. And one other question to you, I know you gave us the collection percentage for the quarter. Do you happen to have what it was, say, in September, at the end of the quarter?

Michael B. Haines -- Chief Financial Officer

Well, for the third quarter each month was really consistent range between 88% and 89%. So it's really consistent across each of the month.

Michael Mueller -- J.P. Morgan -- Analyst

Got it. Okay.

Stuart A. Tanz -- President and Chief Executive Officer

October is heading in the same direction even a bit more positive at this point.

Michael Mueller -- J.P. Morgan -- Analyst

Okay. That was it. Thank you.

Michael B. Haines -- Chief Financial Officer

Okay. Thanks, Mike.

Operator

Thank you. And our next question comes from Michael Gorman with BTIG. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Mike.

Michael B. Haines -- Chief Financial Officer

Good morning, Mike.

Michael Gorman -- BTIG -- Analyst

Good morning, gentlemen. Thank you. Quick -- I'm sorry if I missed this, but Stuart or Rich, in your conversations with tenants or even reworking some of the leases, have any of them started to explore restructuring their spaces or reworking their floor plans? We've seen some of those come out of Walmart to -- maybe adapt to some of the new trends that they're seeing as a result of the pandemic, whether it's more omnichannel or changing the distribution capabilities out of the store? Are any of your tenants are already starting to talk about that with some of their locations in your portfolio?

Richard K. Schoebel -- Chief Operating Officer

Yeah. I mean, this is Rich. I think that the tenants, as they're coming in, are looking at the -- what is the new reality and adjusting how they're setting up their businesses accordingly. Some of the restaurant tenants we've been talking to recently are making sure that they have sufficient outdoor seating, covered, heated, opportunities for curbside pickups and also for the potential of operating as a ghost kitchen in the event that they are not able to offer in-person dining. So, I think that that is -- I think people are being cognizant of what could be a new reality going forward and making sure that they have set up their business accordingly.

Michael Gorman -- BTIG -- Analyst

And just as part of those conversations whether it'd be like the ghost kitchens or maybe a micro fulfillment center and a grocer, are they asking for your assistance whether it's capex, help with zoning or is this more just something that they're taking on themselves within the four walls?

Richard K. Schoebel -- Chief Operating Officer

Mostly, it's been just the right to do it, but they are taking on the heavy lifting in terms of the permitting and the rest.

Michael Gorman -- BTIG -- Analyst

Okay, great. And then one for Mike, I'm sorry if I missed it, but with the investment-grade rating from Fitch, what does that do to the spreads on your line of credit? And also, if you were to go into the unsecured markets today? Like what's the [Speech Overlap] you would say?

Michael B. Haines -- Chief Financial Officer

Their rating doesn't really affect our borrowing margin on the credit line and term loan right now because we've got mid-BBB rating from Moody's. So, it keeps everything where it is.

And as far as the unsecured market, we just thought it's important to have additional credit coverage on our profile.

Michael Gorman -- BTIG -- Analyst

Excellent. Thanks.

Michael B. Haines -- Chief Financial Officer

Thanks, Mike.

Stuart A. Tanz -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Todd.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi. Good morning. Just first question, back to the collection rate in general. Stuart, it sounds like each month in the quarter was pretty consistent in that 87%, 88% or 89% range. Just any comments, I guess, first on October? And then also, do you anticipate getting above 90% or do you think that there may not be significantly more upside here in the near-term?

Stuart A. Tanz -- President and Chief Executive Officer

The trend has been positive, continues to be positive. I think the answer is yes, we will be trending above 90%. I can't give any guarantees, but all indications are that we are getting close to resolving lot of this outstanding rent and it's part of that. As long as the tenants stay open, I think you're going to be seeing the fourth quarter head into the 90s for ROIC.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And then, Mike, on the reserve and the break out around the uncollected rent in the quarter, that was helpful. So, the reserve itself, you noted was $1.7 million, a little over $4 million last quarter, so a nice improvement there. Would you continue to expect that bad debt line to improve in the fourth quarter or do you think that we sort of stabilize around this level until we either see collections improve more meaningfully or there are some turnover in the tenant base?

Michael B. Haines -- Chief Financial Officer

Yeah. Todd, it's really hard to say, it's too early to predict at this point, given that the pandemic is still ongoing, it's almost impossible for us to know whether or not there will be additional shutdowns again, hopefully not. So, unfortunately it remains to be seen.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And just one last question, Stuart, maybe Rich too. Can you just comment on the health of your local tenant base? Collections increased about 300 basis points for that segment of the portfolio, but it still sits below 80%. There are some concern there, I guess. Can you just speak to that segment of the portfolio in terms of expectations to further stabilize collections and some of the risk around occupancy loss for those tenants?

Stuart A. Tanz -- President and Chief Executive Officer

Well, I mean, I'll have Rich -- I mean, let's not forget, Todd, that during the quarter in California, a number of our tenants, both -- primarily would be local tenants had to reshut down their businesses. So that had some impact. Now they've reopened, and in some cases, the capacity that they reopened that is more than it was before they shutdown. So I think that's going to continue to improve our collections for our local tenant base as we move through the fourth quarter.

Rich, anything you want to add?

Richard K. Schoebel -- Chief Operating Officer

Yeah. I mean, I think that -- I think there has, obviously, been a bit more nervousness with the local tenant base than someone who probably has a bit stronger, deeper balance sheets, these regional and national tenants had. And -- but what we're seeing as these tenants are allowed to reopen, the sales levels are back to pre-pandemic in most cases and in many cases are above pre-pandemic levels. It's been encouraging to watch some of these sales trends. I mean, clearly there was very slow period there for several months, but when you at the sales volumes that they are able to do currently, they're in many cases back to pre-pandemic and in some cases above pre-pandemic level. So, we're encouraged. I think that the local tenant base is hopeful for some additional support from the federal government. And I think with that, they -- many of them will be able to weather this storm.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. Thank you.

Stuart A. Tanz -- President and Chief Executive Officer

Thanks, Todd.

Operator

Thank you. And our next question comes from Juan Sanabria with BMO Capital Markets. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Juan.

Michael B. Haines -- Chief Financial Officer

Hey, Juan.

Juan Sanabria -- BMO Capital Markets -- Analyst

Hi. Good morning out there. First just on the dividend, how are you guys thinking about that for '21 kind of reference wanting to save some internal cash flow, which sounds like a great plan to me? But are you thinking about setting it based on a FAD payout ratio or more on the taxable dividend? And how do you think about a long-term payout ratio from a FAD or cash flow perspective?

Stuart A. Tanz -- President and Chief Executive Officer

Well, the dividend as you know is really the Board's decision. But from our perspective, we will be looking at the taxable side, we will be looking at payout as it relates to CAD and FAD or FAD. This is very -- the payout ratios are very important to us. Capex has obviously come down this year as we continue to model '21. Capex doesn't look like it's -- we're going to spend a bit more money, but it doesn't look like it's going to be that much more elevated. So, from that perspective, I think the payout ratios will be conservative. But will be at a point where we believe the yields will be high enough that testers [Phonetic] will continue to buy the stock or the dividend yield and we will conserve enough cash to make sure that we can pay all our expenses and retain some cash in terms of delevering the balance sheet.

Juan Sanabria -- BMO Capital Markets -- Analyst

Maybe I could just follow-up on that balance sheet point, kind of in a low-7 now, I think you want to get to the mid- to low-6s. Any timeframe to get there? And should we think if you guys as net sellers or buyers in '21, given want to balance the opportunity to acquire accretively and attractively, but at the same time, probably want to delever a longer term? So if you could just help us think through how you're thinking about that that would be great?

Stuart A. Tanz -- President and Chief Executive Officer

Sure. We will be both buyers and sellers in '21. And, Mike, in terms of -- we've got cash sitting on the balance sheet, that's going to buildup during the fourth quarter and we intend to take that cash and pay debt down. So from a combination of the big increase in cash, that's been on our balance sheet because we haven't paid our dividends for the three quarters, selling of assets. I think this Company is going to be in a great position to start growing again in 2021.

Juan Sanabria -- BMO Capital Markets -- Analyst

Thank you.

Operator

Thank you. And the next question comes from Craig Schmidt with Bank of America. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Craig.

Craig Schmidt -- Bank of America -- Analyst

Good morning. Regarding your leasing, how would you characterize the new tenants in the non-anchor space? And also, maybe how would you characterize the anchor space renewals in terms of what type of tenants? And who is -- particularly in the small space, who is interested in taking new space now?

Richard K. Schoebel -- Chief Operating Officer

It's coming from a broad range of tenants. I think as we touched on in the prepared remarks, it's people that are looking for great opportunities. So, we are dealing with tenants who are looking for new locations to add to their existing, as well as people that are looking for opportunities where they can get into a space that is completely built out as a restaurant, for instance, at a very low entry cost and are really looking toward the future and are looking past the present situation. As we all know, some of these businesses taken several months to get up and running and the people want to be ready to go as soon as they can. So, it's a broad range, and it's coming from the same sectors that we were seeing before the pandemic.

Craig Schmidt -- Bank of America -- Analyst

Okay, great. And then in terms of the anchors, were they like off price guys or drug store, who did the renewals -- the six renewals?

Stuart A. Tanz -- President and Chief Executive Officer

The new leases were done by central retailers.

Richard K. Schoebel -- Chief Operating Officer

I think he is asking about the renewals. So, it was a mix primarily of grocery stores that took down their options during the quarter. We did have some value operators as well, and a couple of drug stores. But primarily it was grocery stores during the quarter.

Craig Schmidt -- Bank of America -- Analyst

Okay. And then, I was noticing property tax in 2020 seems to be up between 5% and 6%. What do you expect might happen in 2021 as you find state and local short of revenue?

Stuart A. Tanz -- President and Chief Executive Officer

Well, we've got Prop. 15 coming up on November 15, and we'll see what happens there. We don't believe Prop. 15 will have much impact on our California property taxes. I do think that you could see some downward movement on property taxes next year because of the impact from the pandemic. Obviously, many shopping centers have been impacted by the loss or decline in NOI, and that's one of the major metrics tax assessors use in terms of coming up with valuations. I think it could have an opposite impact next year for us and that, although our portfolio has held up exceptionally well, I do think that from a going to the assessor and talking with them about lowering taxes, given the problems that we've all seen in retail will certainly help our tax rates I believe to come down next year. So, we'll see how it goes. Obviously, Prop. 15 is on the ballot next week. But we think there won't be much impact to the Company in terms of property taxes in '21.

Craig Schmidt -- Bank of America -- Analyst

Okay. Thank you.

Michael B. Haines -- Chief Financial Officer

Thanks, Craig.

Richard K. Schoebel -- Chief Operating Officer

Thanks, Craig.

Operator

Thank you. Our next question comes from Vince Tibone with Green Street. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Vince.

Vince Tibone -- Green Street Advisors -- Analyst

Good morning. I have a follow-up on bad debt, sorry to keep going over this, but I just want to make sure I heard it correctly. I believe you said $500,000 of the third quarter charge was related to second quarter receivables. But there was also a benefit from some repayment of second quarter receivable that you had previously written off that you now received cash for. Is that correct that there's kind of both the positive and negative impact from second quarter in there and the third quarter number?

Michael B. Haines -- Chief Financial Officer

Well, hey, Vince, it's Mike. I'll try to summarize it. So the Q3 bad debt number was about $2.2 million, $500,000 was related to past tenants. In the second quarter, we had taken a charge against past tenants as well. We always pursue tenants even when they have left occupancy, they are still on our AR. So, in Q2, it was 1 point -- sorry, it was about $1 million in Q2, we added another $500,000 for past tenants, [Speech Overlap] in place tenants, so it was about $4.7 million or $4.8 million, this quarter it was $1.7 million.

Now, of the deferred rent that was deferred that related to Q2 ARs that got rebilled in Q3 because some of those agreements kicked in and required repayment starting in July. We billed -- we rebilled up $411,000 or $412,000 I think and about 87% of that was paid. So that's just the timing of the year collection on the deferred rent. It doesn't have anything related to do with bad debt.

Vince Tibone -- Green Street Advisors -- Analyst

Got it. So that's what I wanted. So there were no reversals of like cash paid tenants or write-offs that you reversed that kind of $1 million benefit, for example, to the bad debt chart, that's what I wanted to clarify.

Michael B. Haines -- Chief Financial Officer

Right. Well, the third quarter bad debt for current tenants may have been reduced because of the reversals of some from the second quarter that we didn't feel more comfortable, they don't need to reserve any longer or they paid. So, that's why I think that [Speech Overlap] that makes sense.

Vince Tibone -- Green Street Advisors -- Analyst

Okay. Yeah, thank you for clarifying. That's helpful. And then, just if you can comment more or like specifically what made you feel so much more optimistic on third quarter collections compared to the second quarter, just more tenants opened or sales level like what -- it seems like going down from $1 billion to about 4% you said, $1.7 million, I believe in terms of a reserve for total revenue, what made you more comfortable?

Stuart A. Tanz -- President and Chief Executive Officer

Well, I was certainly -- if you're getting the tenants open that had a huge impact.

Richard K. Schoebel -- Chief Operating Officer

Yeah. I mean, I think the other thing to understand as we look at this at the tenant-by-tenant basis and we've been in constant communication with the tenant base ahead of the pandemic and throughout the pandemic even more so. So, we have a pretty good sense of how the individual tenants are doing. We have visibility into their operating metrics and their balance sheets as well going through the deferral process. So, again, when we look at our reserves each quarter, it's on a tenant-by-tenant basis and every situation is unique and we bring to that the information that we have gleaned throughout the quarter. So, as we went through them, that's where we landed in terms of our thinking.

Vince Tibone -- Green Street Advisors -- Analyst

Okay. Thank you for that color. Maybe one more quick one for me. In the first quarter, you disclosed about 13% of your GLA is leased to restaurants, are you able to share any rough split between full-service dining and quick service restaurants in your portfolio?

Michael B. Haines -- Chief Financial Officer

I think it's in our [Speech Overlap]

Richard K. Schoebel -- Chief Operating Officer

We had it in our investor presentation.

Stuart A. Tanz -- President and Chief Executive Officer

Yeah. We don't have the grade at our fingertips now, I think we could follow-up with you with some more specific data. We don't have a whole lot of full service restaurants in the portfolio. There are a few. Many of them are back open and operating, including out in the common areas. We've -- I think as we touched on in the prepared remarks, we've spent some considerable time working with the tenant base to create some really nice outdoor dining opportunities. But most of our restaurants either fall into the fast food category or the quick serve restaurant with probably a handful that you would consider as full service.

Michael B. Haines -- Chief Financial Officer

Yeah. I'm envisioning the pie chart in our investor presentation and I'm pretty sure the full service is about 4% and limited fast casual like 8% or 9% and limited service is like 4% or so. So it's adds up to about 20%, 21%, 22% altogether, but that includes full service.

Vince Tibone -- Green Street Advisors -- Analyst

Great. No, that's very helpful. Thank you for this.

Michael B. Haines -- Chief Financial Officer

Yeah.

Operator

Thank you. And our next question comes from the line of Linda Tsai with Jefferies. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Linda.

Linda Tsai -- Jefferies -- Analyst

Good morning. In terms of capital recycling, is it fair to characterize acquisitions as being largely match funded with dispositions next year or to what extent would free cash help fund any of these deals?

Stuart A. Tanz -- President and Chief Executive Officer

The answer is probably yes, we will try to match fund. Obviously, every deal is going to be different in terms of what we're selling and what we're buying. But we are -- we acquire lease sort of tiptoe back into the market right now, but we will -- I think as we go toward '22, it will be a combination of really matching the two.

Linda Tsai -- Jefferies -- Analyst

Thanks. And then in terms of the tenants whose sales are above pre-pandemic levels, are these essential retailers or more like restaurants who increased their capacity with outdoor dining?

Richard K. Schoebel -- Chief Operating Officer

It seems to have come across the board. I mean, but yes, I mean, we had some -- many of the restaurants are doing much better, obviously, our grocery and drug store anchors are doing quite well. But it really depends on the individual business and their customer base. I wouldn't say that it's all from one category or another.

Linda Tsai -- Jefferies -- Analyst

Thanks. And then just one last one, it seems like TI is on renewals for non-anchor spaces ticked up, what's driving that and would you expect that to continue?

Richard K. Schoebel -- Chief Operating Officer

I just -- I don't know that we would look at that as a run rate going forward. Again, every renewal negotiation, new lease negotiation is individual, it depends on what the tenants' needs are and what we're getting in return.

Stuart A. Tanz -- President and Chief Executive Officer

But at times that uptick is really -- also tenants that are expanding as well, so that's when you would -- on a renewal give them a bit of TIs, which typically we don't on renewals.

Linda Tsai -- Jefferies -- Analyst

Got it. Thanks.

Operator

Thank you. [Operator Instructions] And our next question is Katy McConnell with Citi. Your line is open.

Michael Bilerman -- Citigroup -- Analyst

Hey. It's Michael Bilerman here with Katy. Stuart, you talked in your opening comments about advancing and breaking ground on two out of the three densification projects next year in '21. Can you talk a little bit about the capital that you are committing to those projects? And whether you plan to have any partners involved in that?

Stuart A. Tanz -- President and Chief Executive Officer

Sure. And good morning, Michael. Well, let's go -- quickly go through each one of them. Crossroads. With respect to Crossroads, where we're building 220 apartments and about 15,000 square feet of retail, project cost in the $70 million range, unlevered yields around 8. Of course, bear in mind that these numbers will still move around as we finalize our development agreement with the city, and as we go through the working drawings and the construction bidding process. We are -- right now we're moving forward on the Crossroads as if we intend to own the project, but that could change as we get ready to pull permits in the first quarter.

Novato, which is our shopping center just North in Marin County just North of San Francisco, took -- just took the major step forward with the city in terms of approving a plan there. 175 apartments, 14,000 square feet of retail. Cost and yield really at the same range of the Crossroads. And that particular project, probably JV.

And last, Pinole, we're going through the planning process with the city, which the city continues to be very supportive with. 200 apartments, still some moving pieces on that one, a bit too early to just discuss the economic terms. However, like Novato, we intend to probably do a JV scenario on that one as well.

Michael Bilerman -- Citigroup -- Analyst

So -- and it sounds like you are -- I can hear your enthusiasm coming through the call about sort of getting back to growth and having external opportunities, especially in the markets that you have had this long-term knowledge and relationships with. And I'm sure the list of assets that you would want to buy is quite long, especially given now a lot of those owners being undercapitalized, where you believe, I think, you can bring something advantageous to the table and really generate those returns. And so, I want to make sure I'm characterizing that right, were you really eager to buy, right?

Stuart A. Tanz -- President and Chief Executive Officer

Well, Mike, you have...

Michael Bilerman -- Citigroup -- Analyst

[Speech Overlap] second, right?

Stuart A. Tanz -- President and Chief Executive Officer

Right. I mean, Mike, you've known this management team for decades, probably 25 years. The strength of this team is acquisitions. It's our acumen for going out and finding off-market opportunities, where we can buy good yields, but more importantly, through our operating platform, list those yields within -- probably 150 basis points to 200 basis points in a very short period of time, that's one of our great specialties. We're excited about what potentially we see coming down the road. And so, yes, you're right, we see some enthusiasm out there in terms of management. We believe that this long, with this experience -- this depth of experience, knowledge of the market is critical in terms of doing what we've done to build ROIC. But more importantly, looking forward. So we're excited, we see some opportunities, we'll be turning the capital to get there and maybe looking at other forms of structures. But we think there's going to be some good opportunities for this Company in '21 and we're excited to grow again.

Michael Bilerman -- Citigroup -- Analyst

Well, that's where, I guess, the capital side of things, right? The constraint is your equity cost of capital is not going to be, given where your stock is, there is just -- I don't think you issue any equity to get that, right? So the only way to fund these opportunities is either aggressively selling assets before you commit to buy because the last thing I think you were in the market would want is to go off and start all these densification projects and go out and buy a couple of hundred million dollars of assets without securing the capital needed to go and buy. And so, I guess, how far advanced are your sale discussions in generating that -- those proceeds? And how far along are the alternate capital sources outside of common equity, which I assume is completely off the table, given the fact that your balance sheet is more levered than you would like it to be and certainly relative to the peer set?

Stuart A. Tanz -- President and Chief Executive Officer

Yeah. Look, we are beginning to move forward, I don't know how that's going to progress given the environment out there, but we are moving forward and going back to the market in terms of selling some assets. Sacramento, we had a very good asset here in San Diego actually under contract at a very low cap rate, that buyer has come back to the table and others. So we probably are going to accelerate some of the buy side, and on the same side, we are -- we'll look to deploy that into new assets. We're not raising equity. And we have been approached, I think, as you know, Mike, by outside capital in terms of looking at other structures. We continue to have those conversations, we continue to think about that, that is our last priority, given how straightforward and how simplistic our balance sheet has been. So, we're -- it's really going to be driven through sales of assets and retaining earnings and -- retained earnings. And we think that will bode well for our management team and bode well for our shareholders in '21.

Operator

Thank you. And I'm not showing any further questions at this time. I'd now like to turn the call back to your speakers for any further remarks.

Stuart A. Tanz -- President and Chief Executive Officer

In closing, thank you again for your time. If anyone has any additional questions, please contact Mike, Rich or me directly. For those of you who are participating in NAREIT's Virtual Conference coming up, we soon, we look forward to connecting with you then. Thank you, and have a great day, everyone.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Stuart A. Tanz -- President and Chief Executive Officer

Michael B. Haines -- Chief Financial Officer

Richard K. Schoebel -- Chief Operating Officer

Katy McConnell -- Citigroup -- Analyst

Michael Mueller -- J.P. Morgan -- Analyst

Michael Gorman -- BTIG -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Juan Sanabria -- BMO Capital Markets -- Analyst

Craig Schmidt -- Bank of America -- Analyst

Vince Tibone -- Green Street Advisors -- Analyst

Linda Tsai -- Jefferies -- Analyst

Michael Bilerman -- Citigroup -- Analyst

More ROIC analysis

All earnings call transcripts

AlphaStreet Logo

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.